Irina Makieva: The State, Society and Business are to Support Mono-Cities

RIA Novosti
INTERVIEW,
17.01.2011, 14:56

The problem of mono-cities where life of an overwhelming majority of people is associated with a single city-forming enterprise exists not only in Russia. But in Russia there are more than 300 hundred mono-cities and they start experiencing similar difficulties as soon as an enterprise begins to lose orders including state ones, and in this case it’s not able to pay salaries on time, support social facilities and etc. The Government made a decision to work out a program of supporting mono-cities. State Corporation ‘Bank for Development and Foreign Economic Affairs (VEB)’ is responsible for coordinating this program. VEB Deputy Chairman Irina Makieva told about this program’s implementation in her interview to RIA Novosti.

-In 2010, the program of supporting mono-cities got off to a start. What is this program designed for?

-The program of supporting mono-cities as part of the government’s crisis management program has been implemented for already about a year. During this period we managed to make a significant headway from making a list of pilot projects, developing modernization comprehensive investment plans to extending funds for measures provided for by the said plans. The program’s goal is to create new jobs and diversify mono-cities’ economy. The goal was formulated by the President and the Government. This work in 2010 was performed as part of comprehensive plans for the most populated areas. The objective is to create production facilities alternative to a city-forming enterprise among other things in the SME sector in order to enable city residents to find jobs in case of job cuts at a mono-enterprise. And this forms the basis for sustainable economic growth of mono-cities and regions.

-What’s VEB’s role?

-As a national development institution, since December of 2009 Vnesheconombank has been responsible for coordinating efforts to support the modernization of mono-cities through the working group under the Governmental Commission on Economic Development and Integration headed by Vnesheconombank’s Deputy Chairman. Thus, as part of efforts to modernize mono-cities Vnesheconombank performs 2 key functions: the first function is to coordinate work on considering comprehensive investment plans and work out proposals for supporting projects for the Government and the second function is VEB’s activity as a credit institution. This activity is aimed at providing financial support for investment projects themselves, above all, large-scale ones meeting the Bank’s requirements and designed to diversify a mono-city’s economy and create new jobs. At present, the State Corporation is considering a number of such projects.

-As far as we know from other countries’ experience, such complicated, long-time problems can’t be resolved for a period of one year. What are the specifics of the Russian program?

-In 2010, we had to take urgent measures for individual mono-cities. So we chose a speedy mechanism for making budgetary resources available to regions. I’d like to stress that a comprehensive investment plan is a long-term instrument of regional investment development, in which budgetary money, made available, for example, only for a year, forms the basis for a subsequent launch of investment projects but this time with investors’ participation. We shouldn’t overlook another specific feature of the Russian situation, namely, the magnitude of the set task and the gravity of problems accumulated for many decades. We also cooperate and share experience with leading international financial institutions, for example, the World Bank, the UN Development Program and they confirm the gravity of the Russian problem: financial capabilities of local authorities are significantly limited, mono-cities themselves differ from one another and many mono-cities are located in sparsely populated areas and are isolated. International experience shows that only joint participation of the state, society and business in addressing mono-cities’ problems makes it possible to solve this serious problem though not so fast as we might desire.

-How many cities participate in the program and what are criteria for selecting them?

-In 2010, 35 mono-cities were provided with support: 25 pilot mono-cities, a list of which was approved by the Government in 2009, and 10 additional ones selected in mid 2010 when we realized that we could provide financial assistance to a greater number of mono-cities. The list includes Togliatti, Baikalsk, Pikalevo… As soon as the program was launched we received applications for 2010 from 25 cities worth several tens of billions of rubles. Our goal is not to automatically distribute limited budgetary resources. The main condition for providing support is the availability of well-prepared investment projects backed at the regional level. Moreover, projects should have real investors, business-plans.

-What’s the amount of funds allocated from the federal budget in 2010? What are the main forms and lines of supporting mono-cities in 2010?

-In total, 22.7 billion rubles were allocated from the federal budget. Out of which10 billion rubles are subsidies and another 5.7 billion rubles are budgetary credits intended for launching new investment projects. 5 billion rubles were committed for residential building renovation and for resettling citizens from shabby and dilapidated housing stock, and 2 – for supporting small and medium-sized enterprises. As early as in 2010, target funds were committed to implement programs aimed at reducing tensions on mono-cities’ labor markets. There are also funds provided for by functioning state programs and projects. Furthermore, one of a modernization comprehensive plan’s objectives is to substantiate all forms and lines of budgetary and non-budgetary support at a mono-city’s level as well as to link them to employment and retraining programs through labor force balances. We should be sure that after being downsized specialists will be able to find a job at production facilities being created.

-Subsidies are factually free money for regions…

-First, subsidies are directly tied to investment projects, that is, activities for which a subsidy is requested must be directly linked to implementing large-scale investment projects on a mono-city’s territory, with these projects making a significant contribution to diversifying economy, manufacturing high value-added products and creating new jobs. We proceed from the premise that the state’s main objective in mono-cities is to build infrastructure to subsequently launch investment projects. Second, it was the state that built in the past these mono-cities and laid down problems these cities are facing today, so the state is somewhat responsible for changing the situation in these cities for the better. Third, mono-cities’ modernization results depend to a great extent on regional and municipal authorities’ pro-active position including their efforts to create favorable conditions for developing business in mono-cities. So, the state’s mission is to push mono-cities to take steps to reduce and overcome their dependence on mono-enterprises.

-Could you tell us in more detail about small and medium-sized enterprises in mono-cities, what requirements are imposed for programs of SMEs development in mono-cities?

-The proportion of SMEs in most mono-cities ranges from 1 to 13% and this indicator is a lot lower than on average in Russia. We witness the lowest SMEs development indicators in such major cities as Nizhny-Tagil, Togliatti, Leninsk-Kuznetsky. SMEs insufficient participation in mono-cities’ economy is due to the low level of business activity and low production specialization of mono-enterprises. Another problem is that local authorities are not active enough to provide entrepreneurs with information support as well as the fact that providing support for SMEs is not always a priority in the municipality’s development. So, upon working out comprehensive investment plans we sought to make municipalities which got involved in comprehensive investment plans to assume certain obligations. The measures for providing government support for SMEs were implemented as part of municipal programs. Main forms of providing support here are to extend grants to novice businessmen, compensate for interest rates, hold training sessions and create business-incubators as well as other forms of assistance.

-You’ve just said that they got involved in comprehensive investment plans but aren’t municipalities required to implement them?

-Comprehensive investment plans are to be agreed upon not only at a municipal level but they are also to be approved by a region’s government. This increases responsibility of a city and region for their assumed obligations including the ones to implement measures incorporated in comprehensive investment plans and achieve target objectives. In the course of our activity we arrived at a conclusion that regional and municipal authorities’ role in improving investment climate, creating favorable conditions for developing business is dominant in mono-cities’ successful modernization.

-How do you work with investors?

-I’d like to stress a few lines of activity. First, it’s the activity of regional authorities. Local authorities are to provide investors with administrative and organizational support with regard not only to big business but also to small and medium-sized enterprises. It’s also very important to identify a package of measures to financially encourage investment activity. This issue can be addressed as part of regional investment activity legislation including creating zones with a special economic climate, extending state guarantees, special tax regimes, leasing privileges, subsidizing interest rates. Second, we have to set up information activity with regions. The investor should have full and credible information about business environment in the regions. Third, it is investors’ active cooperation with development institutions, state banks in the regions including Vnesheconombank. We got to know that there were a lot of business ideas in the regions but at the same time there were no well-prepared investment projects that banks could finance. The problem is exacerbated by the shortage of labor resources at a regional level capable of structuring investment projects as well as high labor costs on developing projects resulting in high financial costs which neither investors nor regions are prepared to incur in the uncertain atmosphere of investment prospects.

-The fact is that money is allocated to regions. Are there any tangible results from providing support that can be felt by people and business in mono-cities?

-Yes, there are. In 2010, mono-cities received funds under SMEs, employment and communal services programs. New jobs were created including temporary ones thus reducing social tensions in the cities. But these are short-term measures. The funds received in 2010 in the form of subsidies and budgetary credits designed to build infrastructure enabled regions to implement new long-term projects. I’d like to say it once more that funds were transferred to all cities and we have already received first results: in November a motorway “The Southern Approach to Nizhny Tagil” was opened. The motorway’s reconstruction will make it possible to build the second stage of the integrated logistics facility on the principles of public private partnership as part of supporting mono-cities of the Sverdlovsk region. Extensive work is being carried out in the Kemerovo region, the Republic of Tatarstan and other regions. In the coming one-two years the modernization program in mono-cities is sure to prove to be effective. Nevertheless, I should admit that we have to push many regions to fulfill work on time. It should be noted that we have launched an active search for and a public discussion of investment solutions – in effect instruments of long-term development for reducing cities’ mono-dependence. The program’s implementation would make it possible to create more than 200 thousand new permanent jobs in mono-cities and the proportion of mono-products would shrink from 60% to 40% and each budgetary ruble would raise 5 rubles in private investments. Our performance in 2010 revealed that the most popular form of mono-cities’ economic modernization was the creation of industrial and technological parks with private investors’ active participation (Nizhny-Tagil, Togliatti, Leninsk-Kuznetsky, Chistopol, Vyatskie Polyany and etc.) on the territories of large enterprises with outdated technology. We also plan to develop cluster solutions in the future.

-First Vice Premier Igor Shuvalov said that a list of mono-cities to be supported by the state in 2011 had been expanded. Is this list already known?

-There are 335 mono-cities in Russia. There are no sufficient budgetary funds to support all of them. So, we are going to select among those cities which will submit well-defined modernization plans. All mono-cities are different, so, we have to adopt different approaches to address problems of mono-dependence. Our objective is to work out several standard and successful solutions on modernizing mono-cities to spread this experience to other mono-cities. Another 15 cities are expected to be supported by the state in 2011 (in addition to 35 provided with support in 2010), a list of cities is be made in the first quarter of 2011.

-You said that social tensions were decreasing. Is this going to change forms and principles of state support for mono-cities in 2011?

-In fact, the outflow of personnel has stopped at many city-forming enterprises, they received orders and their financial standing stabilized. But their better financial standing does not mean reduction in mono-dependence. We shouldn’t be waiting for the next financial crisis to start addressing this sort of problems all together as if we could freeze them for the time being. As far as principles and forms of support are concerned I believe that our main principle should remain the same: budgetary funds should be used to build and reconstruct municipal and regional infrastructure and private investors should finance projects themselves. But this activity should be undertaken not as part of anti-crisis measures but as a systematic planned activity.